Indicators of management effectiveness.

Through my readings, I discovered that the famous investor Warren Buffet selects potential companies to invest based on the management effectiveness of the companies. After acquiring companies with good management, Warren Buffet lets the original management continue with their management of the company. There is usually no replacement of the original management after acquisition since the managment has already have a proven track record in profitability and a good organisational culture in place.

I shall share some pointers I learnt through my research on what makes a good management. My sharing is by no means exhaustive as the knowledge of good business management is vast beyond measure and constantly evolving.

A good management focuses on four indicators namely:-
1. Product and service quality
2. Reliability
3. Speed of execution
4. Adaptability

1. Product and service quality

The product or service offered by a company to it's customers must always be of the best quality possible. Products or services of the best possible quality will completely meet the needs of the customers and may even offer higher value than the expectations of customers. On the internal side of the organisation, the managment will put in place every controls to make sure the final product or service is of the best possible quality to meet customers' expectations and beyond.

For example, in a hotel, all product and service offering from the hotel rooms and furnishings, customer service by staffs, hotel food offering and ambience will need to be of the best quality based on the type of the hotel standards. The hotel should meet the expectations of it's customers, if not exceed their expectations in terms of it's products and services offered. To do so, the hotel must seek ways to find out what are the expectations of it's customers so as to better meet their expectations. The hotel must also seek feedback from it's customers on it's products and service offering so as to constantly maintain and even improve their standards in terms of product and service quality.

So, one indictor of management effectiveness is the product and service quality that the company is offering to it's customers. A lot goes into the strategic planning and execution by the management in order to reach the final presentation of it's quality product and service offering to it's customers. It is by no means easy.

2. Reliability

Reliability means how consistent the product and service offering can meet the expectations of the customers of a company. No use offering quality products and services that only meet the expectations of customers sometimes and while at other times, the products and services offered fail to meet the expectations of customers. An effective management must ensure consistency in it's product and service such that it will be able to meet the expectations of all it's customers all the time.

For a hotel, this means hotel rooms must be periodically maintained. Phone calls at the service counter must be answered within a set time. Room guests must always get their rooms at exact set times for check-ins and check-outs must be finished within a set time (as fast as possible) to prevent any delay to the schedule of the guests. Food must be prepared and always served at exact set times for the room guests.

As one can see, reliability is based on consistency in standards. A good management always strives to maintain a consistent standard in the quality of it's product and service so that the product and service quality is not only good but most importantly also consistently good.

3. Speed of execution

The quality product and service offered must be able to meet the expectations of customers fast enough.  There are different expectations in terms of speed of execution depending on what type of products or services are offered. However, generally customers will expect a reasonable time frame within that the product and service must be offered to them. The product and service must always be ready any moment to answer the needs and expectations of customers whenever required.

In a hotel, speed of execution in the product and service offered is more evident. To most hotel guests, time is of essence. The challenge of the hotel is to meet the personal schedule of every hotel guests so that no guests are delayed when they should expect to get their service on time.

It is by no means easy in terms of manpower and execution in order to answer the needs of every hotel guests on time so that no one gets delayed. This is thus another indicator of management effectiveness to make sure the product and service is offered with fast enough speed of execution to meet the expectations of customers at an agreed time frame.

4. Adaptability

This is another test of management effectiveness, the ability to make sudden changes when required to respond to changing needs of the customers. For a hotel, if a guest ask for a food that is not found on the food menu of the hotel restaurant, a good hotel service standard will mean the hotel will still try it's best to answer the unique needs of the guest. The hotel can promptly send personel to buy the ingredients for the new food and prepare it if possible. Or the hotel can try to order the food if it is available from another hotel nearby. The idea here is not to reject the requests of customers as much as possible, but instead try it's best to be flexible to make sudden changes to answer a different new expectation of the customer.

This is another test of management and organisational effectiveness, to be flexible always to anticipate sudden changes to the needs of it's customers.

Conclusion

These four indicators of management effectiveness are by no means easy to reach. However, the management that can better meet these four indicators will have in place strategies and execution measures to ensure the productivity of the organisation is always on the high side.

For an investor, one should look out for good management of businesses to invest in.

Three general ingredients for a successful business.

Investing and business management are closely related. An investor should know how businesses are generally managed to be able to tell a good business from a lousy one. This will allow the investor to make wise choices to decide which business to invest his capital in to ensure the highest possible returns with an acceptable risk tolerance. Similarly, a good business management should know how to allocate the capital in the business, to make investments on projects with the highest possible returns while having an acceptable risk tolerance level. So, a good investor is also a good business manager and a good business manager is also a good investor.

For aspiring investors and entreprenuers alike, what makes a successful business? There are many ingredients that go into the making of a successful business. A detailed discussion is simply beyond the scope of this blog post. However, for a start, I shall share generally what I have learnt from my own research so far.

Three ingredients for a successful business

There are three general ingredients that go into the backbone of a successful business namely, the business idea, the people and the funding sources. Only when all three ingredients are constantly well taken care of can a business be viable and has the potential to be profitable.

Business idea

The business idea refers to what kind of product or service the business is offering. There must be a market for the products or services of a successful business. Any business is always on the move to capture a market for its products or services. No use selling any product or service where no one is buying. The business is not going anywhere if it is not able to have a market to sell its products and services to. So, the business idea must take into account careful market research to ensure there is a market to absorb the products or services offered by a business. The larger the market size the better it is for the business. Better still if the business can monopolise the market for its products and services creating a barrier to entry for its potential competitors. Thus, basically a business needs to sell products or services that have a market for it (people buying the products and services). The business must constantly do what it can to enlarge its market for its products or services. The business must understand its market well so as to constantly make changes to offer better and relevant products and services than its competitors to its markets.

To be able to successfully meet the needs of a market, the business must also have a great vision. The vision drives the business to constantly better itself to meet the needs of a market it is trying to serve. Thus a great business idea is also similar to a vision that serves a great purpose which involves offering the best relevant products and services to meet the needs of a market. The better the business idea or vision that can serve its market well, the better will be the profitability of the business.


The people

This is the most important ingredient to a successful business. Rarely does a business function totally without any people involvement. A business must have people involved such as the business management and team, employees, suppliers and customers etc.

The business management or team must be carefully selected to include people with relevant expertise and experience for the particular business. The business team must consists of talented people. But these talented people must be able to integrate well and work as a team. No use having a pool of talented individuals that always end up in disputes and not able to work towards a common goal. A business team is similar to a soccer or basketball team which involves teamwork and it is a bane to have individuals stand out and refuse to cooperate with other team members. So, team integration is better than just having a group of talented individualistic people who stumble one another and cannot get any work done at all.

Ideally, the business team should consist of people with expertise that complement one another. There are so many aspects of a business to take care of, so different expertise are needed. There should be sales and marketing expertise, legal expertise, human resource expertise, operations and technical expertise, research and development expertise, financial and accounting expertise, and visionary leadership expertise found in a business team. This is again similar to a team sports for example soccer which consists of the coach, team leader, goal keeper, defenders, mid-fielders and strikers. Each individual is not an expert in everything, but when all expertise come together into a team, we have an integrated team of experts.

Thus, the people who make up the business management team is most important of all three ingredients of a successful business because it consists of experts who drive and manage the business to ensure that the business can constantly make progress.

Funding sources

This is the most critical ingredient of a successful business. The success or failure of a business relies on cashflow. Ever heard of big business names that collapse not because the business fails? In fact, big established business names are strong titans in their own markets. But, strong titans can still fall if their cashflow is not met. So, a successful business must manage its cashflow well as cash is really "king". A successful business must be able to establish good relationship with multiple funding sources. Funding sources can include angel investors, bank loans, venture capitalists, bank credit lines, close family and friends, own personal savings or any other forms of equity funding etc.

A business never knows when it will hit a rainy day when funds are needed to ensure continuity of the business, so there must be ready funding sources to ensure the working capital is always met and ready funds to meet business expansion needs.

Conclusion

This blog post is not an exhaustive discussion on business management. It only serves as a broad picture to capture the three general ingredients that an entreprenuer or business manager must look at to ensure a successful business. A great business idea, a great business team and great funding sources and cashflow management. The making of a successful business is on its way.

PS: Please note that the topic of business management is a vast knowledge. This blog post only serves to paint the larger picture of things. Within each of the three general ingredients are many other smaller ingredients that exist. An expert is one who constantly learns. The day the learning stops, the day the expert is no longer known as one.